What with the Phoenix Open and Super Bowl parties this weekend, I did not do my analysis for trading today. By my own rule, that means I do not trade. Rats – coulda been a killer day. I hope some of you caught a good bit of that tasty 50 point move in the ES. Let’s make our ES Trade Plan for tomorrow.
ES dropped to 1730.25 before finally finding support. It actually violated support at a much higher level to get there; I had it at 68.75 but you could make the argument that the 100 DMA at 60 was support or that 54.50 was support. Wherever you had it on your chart, the only one it honored was 1730.75. That means we’re in a new trading range. First, though, let’s look at my other metrics.
5D ATR has rocketed up to 31.70 and VIX is at 21.44. We’re definitely into choppier waters now.
Another metric I check is the 70 period ATR on a 30 minute chart for Regular Trading Hours only. Since I trade off a 30 minute chart, I like to know what the average range of 30 minute bar is over the previous 5 days. (There are 14 30-minute periods in a regular trading day. 14 times 5 is 70.) That 70 period ATR is currently 5.50. This is the amount of “noise” or “chop” I have to account for when setting my stops.
The weekly chart confirms support at 1730. This was the weekly close during the 42nd week of 2013. The next weekly support level is at ~1691. That coincides with the 200DMA, so at this point, that should be pretty solid support.
We are also well inside the regression channel on the weekly chart going back to March 2009 lows. The bottom of that channel is at 1600 currently, but I don’t think that’s in play any time soon.
Plan for Tuesday
My new resistance level is Friday’s low of 1761.25. Support is today’s low of 1732.25. That’s about a 30 point range, which is consistent with the 5D ATR.
As always, I will open trades at my S/R levels, preferably with the trend. In fact, the only reason I will trade counter-trend is if we have already put in 1 full ATR and we are at a natural point to reverse. So I will be long at 1732 with a target of 1761, (assuming an up trend is confirmed.) Since that is a 29 point trade, I will risk a third of that or 9.50 points. I will take half off at 15 points and trail the rest by 5.5 points.
I will be short at 1761 assuming a down-trend is confirmed. Target will be 1732. Since this is the same trade in the opposite direction, I will have the same stop loss, profit targets and trailing stop strategy in the opposite direction.
I will be short at 1732 with a target of 1721. That amount of profit implies a stop-loss trigger for me of 3.5 points, which is less than the 30-minute ATR of 5.5. I will have to be very convinced I have the odds in my favor for this trade given that the profit target is only 11 points. However, with an ATR of 30 points, that puts the BRN of 1700 as a natural resistance level. If the trend is clearly down, (Russell and NQ confirm), then I could be convinced that 1700 is in range for this trade. Nevertheless, I will keep a tight rein on this short trade.
I will be long at 1762 with a profit target 1 of 1777 and target 2 of 1788.50. This would be a 24 point trade so I will risk 8 and trail a stop by 6 once I hit target 1.
Each of these trades should unwind in about a day, although I will leave them open overnight if they seem to be working correctly.